by Dale Coberly
2013 Trustees Report:
Social Security is Running Out
of Worthless IOU’s!
9.6 Trillion Dollar Unfunded Deficit!
I did not take a hard look at the 2013 Trustees Report when it came out last Spring because I thought I knew pretty much what it would say, and what it would amount to. And I really have better things to do than keep up with the latest wild guesses presented in hysterical and misleading form.
Subsequently CBO came out with its own report projecting a 9.6 Trillion Dollar deficit, and I tried to answer some hysterical letters from the usual commenter on AB. At that time I did not know the timing of the CBO’s increased deficits, so I was unable to give a precise analysis of what they amounted to. Since then I was able to go back to the 2013 Trustees Report which also projected a 9.6 Trillion Dollar deficit over 75 years. But it gave details that I could use to calculate exactly what this means in terms of “how much is it going to cost “me” over a time period I can make sense of.
The answer turns out to be…. wait for it… about eighty cents per week, in today’s terms, per year, starting in 2018, repeated each year for 15 years to 2033. Then it would only need to be repeated an average of once every six years… this amounts to an average increase in the tax of 13 cents per week per year…for forty five years… with the last increase occurring in 2078, which brings the tax rate up to 2.2% higher than it is today (for each the worker and the employer), which is enough to fund Social Security forward into “the infinite horizon” as far as the eye can see.
People who object… much less are hysterical… about a 2.2% increase in their payroll tax over the next 65 years are not thinking. They are not thinking that they will get this money back with interest. It is the money THEY will need to pay for at least a basic retirement “if all else fails.” And they are not thinking that this amounts to a raise in the tax of about 18 dollars a week while their incomes will be going up over one thousand dollars per week… in real dollars. The “interest” comes from the fact that under pay as you go, you get paid out of a total tax that is in real dollars about twice what it was when you paid in… all due to the growth in the economy. The Big LIars like to confuse people about that. They
pretend that “the old are getting more than they paid in, paid for by “the young.” They don’t bother to remind you that “the young” will become “the old” and get the same good deal… forever.
I can’t do much about people who choose to be hysterical, but the rest of you might be better able to resist the scare-talk by remembering it means eighty cents per week. Or even 17 dollars per week out of a thousand dollar per week raise. AND you will get the money back, with interest, when you need it most.
It should be noted that this is not the only way to pay for your expected greater needs when you are too old to work. But it is the fairest way I can think of: You pay for what you will need yourself. And those who will get the most pay the most. That is because by phasing in the increase gradually, those with the highest incomes and longest life expectancies (both of these are also “phasing in” gradually) will pay the most. A worker today with forty years to go to retirement would see only an ultimate increase of 1.7%… which would be an AVERAGE increase of 0.8% over the forty years.
But this is what retirement is going to cost you however you pay for it. As an example, the CBO report says that an “immediate and permanent” increase in the tax of 3.4% would be needed to pay for the increased costs. This is not quite true. But in any case the difference between their “immediate 3.4%” (combined) and my “4.4% after 65 years” (combined) is made up for by the interest that immediate 3.4% will be earning before it is needed. Interest that amounts to about 1% of payroll… which you would pay for hidden in your income tax.
Even if you relied on the stock market… and were not left broke at the worst possible time… the same amount of money would have to be withdrawn from the economy (lower wages or higher prices) to pay your dividends, or profits on stocks you sell. And if you think you can “tax the rich” to make them pay for your retirement, guess again. The rich can pass through their tax costs onto their customers and employees. And all you would have done is exchanged the guarantee of Social Security for your chances in law of the jungle economy which the rich favor.. because their chances are better than yours. And, if you try to make “the rich pay,” or even if you succeed for awhile, those rich will not rest until they have destroyed Social Security entirely… leaving you to take your chances with the law of the jungle.
An interesting fact, pointed out by Bruce Webb, is that paying for the extra costs of Social Security by gradually raising the tax eliminates the need for Congress to repay the Trust Fund. The Trust Fund balance just lies there on paper without needing any actual cash except for interest payments that would amount to about one quarter of one percent of total “adjusted gross income” per year. But be warned, “the rich” don’t like to pay interest even on money they borrowed, even if it means never having to repay the principle (or even all of the interest), so they will keep finding ways to make
this sound like an unfair burden on the young.
It seems to be easier for the Big Liars to come up with new hysterical ways to present the costs of Social Security, than it is for me to deconstruct them for the Truth. But I don’t see any reasonable scenario that will change the fact that you will always be much better off with Social Security than without it. And that you can always pay for it yourself at a cost that is reasonable for what you get: a guaranteed ability to retire when you can’t work, can’t find work, or … because you have paid for it yourself… just want to do something else with the rest of your life than work for the boss.
And try to keep in mind that while Social Security provides “security” at a reasonable cost for average workers, and even the higher income wage earners, it provides truly life saving insurance for those who have bad luck… including disability, death with dependents, or just never earning enough to have saved enough to retire. For these latter, the “return on investment” can be something like ten percent “real” interest… which is way beyond anything they could have gotten “in the market.” And you never know when you might become one of them.